Doubling of Farming Income

In day-to-day conversation, a number of terms sometimes lead to confusion, especially when the words involved are in disconnect from colloquial and professional context. Revenue and profit are often used interchangeably by the average person, but in reality these terms have separate meanings (albeit profit being an outcome of revenue). Contextual clarity on terminology is important to avoid confusion of intent or action. Revenue is a synonym for income, whereas profits refer to net income. In simple terms, profits means the income or revenue that remains after all expenses. 

Income is directly linked to Sales

Income is the total revenue generated from sales of goods or services. It is therefore an immediate corollary of sales fulfilled. Simply explained, the challenge of Doubling Farmers’ Income, has at first instance, to translate into multiplying their Sales volume.

      India's target to double farmers’ income, will best be served by first empowering their access to multiple markets.   

Currently, the access to consumers and markets is restrained largely due to certain physical limitations of the logistics system. Policy direction to ramp up physical connectivity from farm to consumers and easing regulatory restrictions are indicated. Greater access to more markets hedges against selling risks, and adds opportunity to increase production volumes.

At a round table recently, suggestions were put up to develop a roadmap for doubling of incomes. Disappointingly, these mostly focused on aspects that relate to optimizing input costs. In the current context, cost optimisation is secondary to the basic need... to open options to multiply revenue.

Say, a farming group is able to sell only 50% of their production capability. Increasing the quantum of produce or saving their input costs will not increase their revenue stream! Farms need to be empowered to reach out to more consumers so that they can scale up their sales.

Price Realisation impacts both Revenue and Profit

The price point at which sales are transacted, and the transaction volume, directly reflects on the top line, or revenue. The simple-minded approach would be to force an increase of the selling price, but this tactic interferes with demand-supply dynamics and is not sustainable.  

The price discovery or the value fixation of a product, is best left linked to demand-supply balances, quality and consumer acceptability. In case of fresh food items, an episodic demand-supply mismatch can occur for various reasons. However, physical delivery remains essential to close the sales transactions and this brings us back to the need for effective farm-to-consumer agrilogistics. 

Profit is directly linked to Operational Excellence

Operational excellence helps optimise the inputs for better field level productivity (planting material, better practices), to reduce impact on depleting resources (fertigation), to lower cost of operations (farm mechanisation), to counter on-farm vagaries (protected cultivation), etc. These and many other tactical measures at farm-gate, will help to reduce input costs and may add to farm outputs. Lowering of input costs will also make the produce more competitive at a lower price point, and therefore help capture more consumers.

Nevertheless, generating revenue is primary requirement and revenue multipliers need to be the key interventions to target.

Profit is the element of maximising one’s net returns, and a simplistic tactic can be to artificially time the markets to get the best price per transaction. Price arbitrage where it exists, has always attracted opportunists, and this in turn is not necessarily sustainable over the long run.

Increase in Farm Yields is not Revenue Generating

Efforts towards achieving more production or productivity must be in tandem with market linkage, or in fact, be secondary to market development. Increasing farm level productivity assures a supply-side surplus, which when not linked with markets, results in a fall in price and possibly losses.

Case in example is the frequent glut evidenced when farmers produce more of a crop that fetched better margins in a previous year. The higher yield generated creates a market imbalance, price takes a downwards trend and good food is left on the wayside to rot.

Delivery Fulfilled is Income Generated

Luckily in case of food, all else being equal, demand is almost eternal. The bottlenecks as they exist, is in reaching that demand. In fact most farmers will retort, “… do not teach us how to produce more, first show us the market!”

Effective logistics networks and supply chains will ensure that surplus production finds that eternal demand, taking produce to multiple markets. Building the ability to reach more mouths, more consumers is key to multiplying farmers’ revenue. All other options that target reducing of input costs are secondary and merely add a few percentile points to the income equation.

While the government procures cereals and builds a buffer for strategic reasons, the high value produce is subject to availability of suitable market linkages. The successful implementation of logistics links is already evidenced in India's phenomenal success with milk, and this needs to be replicated across other food items. The immediate need is to enhance all forms of market links – with main focus to close the gaps in all physical modes of delivery.

We need to take our farming from peasant mode to agri-business mode of operations. This also means our actions and analysis should be in accordance. Strategic thinking cannot remain provincial and market development needs to be more expansive, and at a national level.

Logistics networks serve to smartly bridge demand with supply, help farmers achieve  gainful productivity and makes agriculture sustainable at all levels. 

Once our food production has access to an assured delivery mechanism, any supply-side surplus would be able to reach out to more demand points and attain gainful realisation. The physical link to multiple markets, is key to enhancing revenue for farmers and to mitigate the risk to profits from demand-supply variations. The eNAM (national Agriculture Market) system is to be a pre-cursor to nation-wide physical connectivity… a national food distribution grid. We need to,

• Pull out all plugs to promote scaling up Agrilogistics services, with farm-gate as point of origin.
• Implement policies that empower the farmer-producer to move up the transaction chain, higher along the value stream.
• Stop extolling value addition to produce, focus on maximising value realisation to producers.

Previous posts:
 Fire Jump-started Humans, Ice will Carry-us Forward | Food Loss and Its Relationship to Cold-chain | Perspective on India's Cold-chain | Sorry State of Market Research | Crux of the Global Food Crisis